Big Banks See 2.25% 10-Yr Treasury Yield in a Year

By Michael Aneiro

Barron’s and this blog have been cautioning investors that bond yields may begin a long-anticipated rise next year, which could undercut prices of existing bonds and produce losses in bond funds. Today we learn that some pretty big banks, which are about as close to the Treasury market as you can get, also see a rise in Treasury yields next year. Cynthia Lin and Min Zeng report in today’s Wall Street Journal:

The Treasury bond market’s 21 primary dealers—a club of big global banks that trade directly with the Federal Reserve and underwrite Treasury debt sales—see a median 10-year yield of 2.25% at the end of 2013, the [Dow Jones Newswires] survey found. Forecasts ranged from 1.4% to 3.0%. Benchmark 10-year notes yielded 1.709% late Friday, from 1.878% at the end of 2011….

Only three of the 21 banks expect the 10-year yield to end 2013 lower than its current level….

But even if the economy pushes ahead and puts upward pressure on yields, the Fed remains a daunting force on the other side of the market. Steadfast in its commitment to stimulating the economy by buying bonds, the central bank won’t likely allow yields to rise significantly, which then would increase borrowing costs. This fact compelled many of the dealers to put a cap on how high yields can go.

Treasuries effectively form the backbone of the bond market, with yields other types of bonds measured against Treasury bonds of comparable maturity, hence movements in Treasury yields tend to reverberate throughout bond markets.

Treasury yields are starting out the week higher as well, with the ten-year note down 4/32 in price, boosting its yield to 1.721%, per Tradeweb data. The 30-year bond is also down 4/32 to 2.879%.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.